May 07, 2013

Dow 20K – Halfway There

The Dow had been toying with the 10,000 mark, after a 10% correction. The news from Europe seemed to be terrible, and everyone was on board with the domino theory. We were in the midst of the worst May since 1940. The most bullish of market pundits were calling for upside of 8% or so. Meanwhile, there were plenty of highly visible pundits calling for Dow 5000 – or worse.

Something was seriously wrong with the media perspective. Investors were getting a huge dose of the downside risk, complete with numbers, but the upside story was more difficult to explain. I wanted to challenge readers to step back and to reexamine their biases.

I suggested the simple proposition that the market was more likely to double than to be cut in half. It was the sort of thing that Peter Lynch said in days gone by, and everyone accepted it as obvious. Something changed in 2008. We entered a climate of negativity on all fronts, and we still have not emerged.

I am accustomed to responses on the order of "Miller, you idiot!" When I started to write the blog, some seven years ago, I was a bit sensitive, trying to persuade every objector. At some point I realized that whenever you have something important to say, there will be many who disagree.

To appreciate what happened three years ago you need to look at the comments and responses, especially on Seeking Alpha. Hardly anyone agreed with my proposition, and most did not understand the objective. I did not give an exact time frame for the forecast, but I did say "faster than people expected" and "less than ten years" which actually implied an annual growth rate in nominal terms of only about 7%. Even these modest statements were seen as bold and controversial.

I am going to follow up on this post with some analysis of what has fueled the rally.

Most investors have missed the first leg of the rise to Dow 20K. Many will stay on the sidelines, listening to the same tired reasons from the same inaccurate pundits. One guy scolded me for ignoring the Shiller P/E and recommended reading Grantham and Hussman. Today's comments on my work often suggest much the same.

Since I know that people will not really click through to the old post (although that is how to see the fun!), I am going to reproduce here much of what I wrote.

"Someone needs to say this:

Dow 20K.

The fear mongers abound in the financial media. TV and online ratings seem to go to those helping to peddle fear and sell gold or structured annuities (with high commissions attached). Every individual investor I meet is scared silly. They do not realize what is at stake.

For the mainstream media, it is all about ratings. They have all learned that fear sells. Attacking Obama, attacking Bernanke, attacking European leaders, explaining government policy as if it were the family budget --- it all works. The big-time media have garnered page views and sold papers.

Even when they attempt to show "balance" they have someone warning about Dow 5000 and the "bull" saying that stocks will go up 8% this year! Is it any surprise that watchers are scared witless?

Investors need to understand that they are missing more than an 8% move. Stocks will double. When will they get on board? Do they have a plan?

The Proposition

Let us attempt to restore some balance.

There is undue publicity given to Dow 5000. A 50% decline has happened only twice in history. The first time was in the Great Depression. The second time was when people incorrectly believed that the fall of Lehman would lead to another depression. As we now know, that was incorrect. March, 2009 was a buying opportunity. What about now?

Here is the proposition.

The Dow will double before it is cut in half."

More - -much more – to come on this theme. The individual investor faces the very same challenges.

I do not know whether the current level of Dow 15K will hold or not in the short term. I hope that readers realize that is not the point.

Comments

I don't get how "most investors missed" the first leg? Surely evryone that "got out" (and are still presumably waiting to get back in) had to sell their shares to someone - who therefore must have been "in" for this period of rising.

There is no "cash on the sidelines", because as they invest into the market, someone else must be cashing out.

Good post.
People like Buffett - J. P. Morgan, too, for that matter - made fortunes understanding that there is always an underlying pressure in the positive direction. That's why people work, organize, learn... it's what they put their lives into and, in the aggregate, it succeeds.

There is good reason to believe your thinking will ultimately prevail as wisdom.
The chant really started in my view with 9/11 with "Be afraid Be afraid-and vote for me". This was quickly followed by the hucksters with "be afraid and buy my stuff", the stuff being anything from gold to shotguns to survival equipment. The endless relentless chant has been to "BE AFRAID". This has been costly to many, particularly the early stage retirees.

Awesome. The worst part of it is that the fear-mongers kept the people out of the market who lost a lot in the Great Recession and were close to retirement, so not a lot of time to catch up. The fear monger idiots made a bad situation worse for a lot of people that now have no chance to recover. Way to create much misery.